Marty lost $8 Million dollars in 2007 during the housing bubble market crash. He was sitting on 65 properties in Phoenix, AZ when the market dropped about 60% in value. The music stopped and he didn’t have a chair.
5 Marty Mistakes
1. He didn’t really have a plan and didn’t really follow it. He could have sold off his r.e empire and owned his house and 10 rental properties free and clear and had w/$10k/month income.
2. He was a novice. He could have followed inventory levels and absorption rates (the amount of homes on the market divided by pending sales), I would have discovered that the party was over. In his county in Phoenix, in about 2.5 years homes on market went from 8,000 homes to 60,000.
3. He was investing for appreciation, not cash flow. He had negative cash flow by trying to buy too fast. Buy, borrow, spend too much. Once it got tough to obtain financing, he went out of business.
4. Treated his business like a hobby. He didn’t have a basic business plan. He didn’t have exit strategies in place. Could have understood balance sheets and cash flow statements. Implemented an organizational chart and training system for his helpers.
Now he wrote a business plan and uses QuickBooks and started all the local R.E industry newsmakers. Donates time/money to church and nearby homeless shelter for children.
Best advice he ever got was from a local R.E Attorney. “Find a LOCAL Real Estate Investor and serve them somehow, to make it worth their while to teach you the business” i.e bring them deals or money, mop their floors, bring them coffee.
Maybe you could become their project manager, hang ceiling fans, hang blinds, install door hardware, house clean or be their property manager. If you don’t have the skill, remember all skills can be learned, play to your strengths and delegate/partner out your weaknesses.
So that’s what Marty did, he went to a local class on Foreclosures, it was actually a class for Realtors. He met a guy in class who was working with a local investor who was buying homes at the court house steps.
They took Marty under their wing and showed him the way for about 2 years. He did about 25 deals with them and they split the profit 3 ways. He was basically their bird dog. From there he had enough of a track record was able to start raising money with his family and friends, which grew into $2.5 Million in investment capital.
During the collapse he read a lot of books like Abraham Lincoln, Thomas Edison, Walt Disney and everyone of them had a painful failure. You might call it a rite of passage.
Marty recommends getting your Real Estate License to find short sales and REO properties with your MLS access. It also allows you to comp properties and get access to properties. Forget about listing deals and writing offers. And perhaps if you are not doing the large volume of deals like Marty, you might be better off not getting your R.E License and just focus on building your team.
You have to generate money/income either from a business or from OPM to fund your R.E investing.
Backwards technique: How much money do you need to cover your livelihood, your bills and fund your R.E Investing? Maybe that’s $10k/month. Think about your goals 1, 3 & 5 years.
Know your market, maybe you can make $10k/flip. Well then how much money does it take to buy, rehab, holding costs and sell… to fund that flip? Then the question becomes how do i raise the money needed to flip 12 homes/year?
Raising money, how much do you need? Maybe $250k if you wanna flip one house/month.
Important to create a brand for your flipping business. Every house should look, smell and feel the same.
Partners: What are you good at?
1. Acquisition. Find and analyze properties, deals in the pipeline.
2. Rehab. Fix your house up properly.
3. Sales. Sell your house.
4. Raising capital. Find money for your deal.
Look at how much distressed properties are selling for i.e foreclosure.
Partners: Good to have same temperament, expectations are laid out before you get started, clearly define each others roles and responsibilities & take it slow. Do one deal, maybe a small one to start with.
Marty got introduced to a very successful R.E Investor by his Pasture at his church. Who he mentored up with and started working for.
When your friends & family see you are doing deals, they will want to invest with you. Promissory notes and deeds of trust 6-12%.
After working for his Pasture for a while his friend Manny called him and said why can’t you fix n’ flip houses on your own? Marty said I could if I had money, that’s where Manny came in.
Before you can partner up you have to have a track record, before you can do that you have to work with people who know what they are doing.
Another good way to raise capital is to find a good deal, the money WILL come.
Book recommendation: “The Snowball” by Warren Buffet
Marty got started as a bird dog. He would use Purchase agreement, w/his LLC as buyer and use “and/or assignee” clause. Then he would assign it to an investor friend who would give him 3, 4, $5,000 bucks.
He got some capital together and found a deal that homeowner agreed to sell for $85k that was worth about 140k and needed about 20k in repairs. About 55-60 cents on the dollar.
Then he put up an ad w/cross streets of the house and details. He got a dozen phone calls on that house. Wholesaled it for about 10k, which would be about 15% of the spread. You can do a lot of advertising with 10k.
The first guy that called, told him call me 1st, I will buy every deal you can get me. Find good deals and the money will find you.
Marty tried direct mail and failed. He don’t like talking to a lot of unmotivated people. He would rather scour the MLS or go to sheriff sale.
Favorite R.E Book. “Rich Dad Poor Dad” “Rich Dad’s Cash Flow Quadrant”
Favorite Business Book. “E Myth Revisited” “Intelligent Investor” “The Snowball”
Favorite Vacation Area: Rocky Point, Mexico. On the golf of CA.
Some take away numbers:
In Milwaukee area where they are flipping their purchase price + rehab cost was 78% of sales price and net profit was 40k, which probably reflects holding & closing costs, etc.
Every business needs an operations manual. (systems in place)
How to Fix and Flip a House WITHOUT Any Construction Experience…
Marty’s Free House Flipping Guide